I am a 25 year old girl living alone and having to make some critical financial decisions. Personally, I mostly struggled with allocating my finances for ‘stuff’ I really want without falling short of other necessities that I really need. Making these financial decisions has been a learning curve that has ultimately allowed me to start thinking about the importance of  financial management such as budgeting and staying financially disciplined. I would like to share 5 steps that I have been following to help me draft monthly budgets, but before I get into that, I would like to start by discussing some basic concepts and phrases.    

What is a personal financial budget?

 A personal budget is a spending plan for your money that allocates future personal income towards expenses. In simple terms, a budget shows where your money is coming from and where it all goes each month. 

 Why is budgeting important?

“Budgeting allows you to determine in advance” whether you will have enough money to do the things you need to do or would like to do. It makes you focus your money on the things that are most important to you and how much money you will be able to save.

The 50, 30, 20 ratio

For this article, I asked my sister, a budgeting legend and an accounting and financial management major, to share some tips on how she budgets efficiently. The one tip that is most relevant is the act of splitting your budget into three sections (depending on what works for you). For example, you can divide all your income into a ratio of 50, 30, 20. This is the method that I also use, and I can firmly attest to it. At least 50% of my salary goes to essentials (these are the things that are needed and usually paid every month such as rent or mortgage, water, electricity, and grocery and toiletries). 30% “wants” (goods that are needed regularly like a new pair of jeans – anything that is not a necessity). And last but not least, 20% goes towards savings. 

 5 steps to follow when drafting a budget:

 Step 1

Gather all the relevant information such as your financial statements and bank statements and or mortgage statements. 

Step 2 

Use the information from step 1 to calculator your income and identify your expenses

 Step 3

Draft your budget. Write down a list of all the expenses you expect to have during a month.

There are two types of expenses, fixed and variable expenses.

(a) Fixed expenses are those mandatory expenses that you pay the same amount each time. For example,  rent, electricity, water, etc.

 (b) Variable expenses are the types that will change from month to month.

 If your income is higher than your expenses, that means extra savings. If expenses are higher than your income, find areas in your variable expenses you can cut off to balance the budget. This is called expense adjustment.

Step 4

Track your expenses or spendings to ensure that you are within your planned budget. Ensure that you record what you spend throughout the month to keep you from overspending which will help you identify unnecessary expenses.

Step 5

Keep checking in. It is important that you review your budget on a regular basis to be sure you stick to your budget.

EndNote

Overall, budgeting is a great way to acquire as much financial freedom as possible. On a personal note, as someone who is a food junkie, I have realised that if I don’t include occasional take-outs and entertainment in my budget, it results in unplanned savings expenditure. So for the past few months I have been able to readjust my savings and it seems to be working out well. Yes, sometimes it leaves me broke (hahah…) but at least I know that my savings are secured, which ultimately gives me a senses on financial security and financial freedom. 

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It’s easy to get swept up in buying the latest gadgets, fashion items or even eating out. But often times when we make purchases, we don’t think about if what we are buying is something we just want or something we need. As someone who has fallen into the online shopping hole one too many times. I can tell you that the struggle is real. And sometimes hitting “buy” just feels so good even if you know you don’t need something. However as a home owner and a new mother I have come to learn that sometimes I have to put what matters to me and my family first over what I just want.

This can mean making sure our bills are paid, or that we have some savings for any emergencies. What ever the case, for both my husband and I, it is a constant balancing act of deciding what we want, what we need and what we cant live without. Which is why when buying something it is important to make sure that I ask myself these questions;

1. Do I need this?
2. If not then do I have the funds to buy it without compromising on our families needs?
3. If not then ask if you can save to buy that thing later?

This may seem like a long way to go about spending money but as someone who works, I can tell you that when you start to think about how hard you work to make your money, you will be less likely to spend it on things that don’t matter. Or things that you just don’t really need. Another good way to go about it is to ask yourself if something adds to your life. For instance, for my husband and I going out to dinner or lunch is a must. As new parents we rarely get to go out and don’t party much either. So when we can we eat out together as a family.

This is a good change of pace but also a way to reconnect outside of our home. Which when you have a baby can be a stressful and messy place. So sitting out, eating good food and drinking good wine is a great way to decompress. And whilst it is a luxury, it is one worth making for us. It also is not one we make every single day or without considering the complete cost.

When it comes to other things that we love we also try find alternative methods to get them. As someone who loves clothes and looking good, I have realized that instead of spending X amount on a new outfit. I can spend a fraction of that on a new outfit from a second hand or consignment store. This is not only better for my wallet but also better for the environment. So what ever it is that you want or need its important to ask yourself if there is another way to spend your money. In a way that is well thought out and that will make you feel good in the moment and after you have swiped your card.

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